Plugged In: the energy news podcast
Coming from the heart of the Montel newsroom, Editor-in-Chief, Snjolfur Richard Sverrisson and his team of journalists explore the news headlines in the energy sector, bringing you in depth analysis of the industry’s leading stories each week.
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Plugged In: the energy news podcast
Norway faces a dry, expensive winter
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Reservoir levels in southern Norway are at their lowest for 30 years raising concerns about power prices in the months ahead and the Nordic region’s ability to balance domestic needs with exports to neighbouring markets.
In this episode of Plugged In, we examine the state of Nordic hydropower, the outlook for reservoir refilling and what current weather patterns could mean for power markets in the months ahead. The discussion explores the role of interconnectors, changing power flows between countries and how weather uncertainty continues to shape market expectations.
Looking beyond this winter, our guests also consider how the Nordic power system may evolve over the next five to ten years as demand rises, generation changes and the energy transition gathers pace.
Host: Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News
Guests:
Gert Ove Mollestad – Norway Editor, Montel News
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & Forecasts
Silje Eriksen Holmen – Head of Fundamentals and Hydrology, Volt Power
Sigbjørn Seland – Chief Analyst, StormGeo
Editor: Alexandra Carlon
Producer: Alexandra Carlon
#Nordics #PowerMarkets #Hydropower #EnergyTransition #ElectricityMarkets #Reservoirs #NordicPower #EnergySecurity #Montel #PluggedInPodcast
Reservoir Levels Set The Stakes
Silje Eriksen Holmen – Head of Fundamentals and Hydrology, Volt PowerWe actually need autumn inflow at about 66% above normal to refill reservoirs by the end of the year.
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsI still believe in the markets ability to regulate this. But it means okay, we are having high prices. We will be on par with kontinental prices.
Sigbjørn Seland – Chief Analyst, StromGeoProbably by the end of the year we will have a hydro reservoir filling in NO2 somewhere between 46 and 67, maybe even 70%.
Richard Sverrisson – Editor-in-Chief, Montel NewsHeat wave after heat wave, droughts, drastically low river levels, have all pressurized power generation and led to increased price volatility. In Norway, a combination of factors, including low rainfall, have reduced hydropower reservoir levels in Norway to their lowest for 30 years. What does this mean for prices for imports and exports out of the country, especially given the context of the wars in Iran and Ukraine?
Southern Norway Hits 30-Year Low
Richard Sverrisson – Editor-in-Chief, Montel NewsI'm very pleased to be joined by Gert Over Mollestad, who's Montel's editor Norway. A warm welcome to you, Gert and good to have you back on the pod. We're going to be focusing mainly on the area which is your where you're from in Norway, really Gert, isn't it? Now, not everybody follows the situation or the hydrological situation away closely. How unusual is the current situation?
Gert Ove Mollestad – Norway Editor, Montel NewsIt's fairly unusual, I would say. We have had really low levels of snow this winter and also a quite dry spring and summer. So the reservoir levels in NO2 is now on the lowest level since 1996. Yeah, we're close to a 30-year low here. So it's rather unprecedented.
Richard Sverrisson – Editor-in-Chief, Montel NewsWhat does that mean for power markets, not just in Norway, but in the Nordic region?
Gert Ove Mollestad – Norway Editor, Montel NewsWe have a much tighter price coupling now than we usually have. The price in southern Norway has been more or less the same as in Germany for the whole year on average, which means that the normal exports flowing from Norway, and in particular southern Norway, as where the this is where the interconnector comes in, is more or less halted. So we have a small export so far this year, but Norway is not kind of the surplus country as it usually is. And so everyone's hoping for rain, I guess.
Richard Sverrisson – Editor-in-Chief, Montel NewsWhat's the outlook now?
Gert Ove Mollestad – Norway Editor, Montel NewsWell, it's still dry, unfortunately. So we I think the latest forecast is about a half or a bit more wet than a half of normal normal amounts. And the autumn is usually the most wet season here in Norway, so it's not a very good outlook today, at least.
Richard Sverrisson – Editor-in-Chief, Montel NewsI mean, looking forward, we're seeing more and more of these dry periods. What are you hearing in the market? How are people preparing for this? I mean, there's on one side you've got the power producers who've got to manage the water levels quite closely, but also the consumers. What are you hearing?
Gert Ove Mollestad – Norway Editor, Montel NewsWe talk to a lot of producers lately and they are not very concerned. They're open for there's not an energy crisis looming, energy crisis looming, but there might be a price crisis coming that this winter might be quite expensive, and that will hurt particularly small scale businesses since they are not hedging their volumes that much. And as we all know, that consumers, you and I, we are safeguarded by the Norges price scheme. So the government is paying our will.
Richard Sverrisson – Editor-in-Chief, Montel NewsWe talked in the past about Norway being the battery for Europe. Are those days gone?
Gert Ove Mollestad – Norway Editor, Montel NewsWell, no, I wouldn't say that. We still have a structural surplus this year. It won't be as charged up as it usually is, but there's still a lot of flexibility in the Norwegian hydro system. So given short periods of very high demand on the continent and thereby higher prices, Norway will be able to export, but there will not be this regular constant export as we have had usually previous years, and also in occasion of periods of very low wind, for instance, in the Nordic, then Norway will most likely be a net importer. So then we will fetch power from Germany, Denmark, and the UK.
Richard Sverrisson – Editor-in-Chief, Montel NewsGert. Thanks very much for setting the scene. How concerned should markets be, especially given the extreme weather and a fast-moving, unpredictable geopolitical environment. I spoke to three Nordic hydropower experts to find out. I'm delighted to be joined this week by Gro Klæboe of Volue Data and Forecast, Silje Eriksen Holmen of Volt Power, and Sigbjørn Seland of Storm Geo. We are seeing very dramatic pictures across Europe, across southeastern Europe, across the Rhine, in France,
Price Risk Versus Energy Security
Richard Sverrisson – Editor-in-Chief, Montel Newswhere river levels are extremely low and hydro reservoirs are also very low. What's the situation in the Nordics currently, Sigbjørn?
Sigbjørn Seland – Chief Analyst, StromGeoIt's a natural place to start with a hydrological situation in the Nordic region and in southern Norway in particular. The situation is weak. We have a deficit of around 17 terawatt hours in the Norwegian hydro reservoirs, and around 10 terawatt hours deficit in in NO2, the southwestern part of Norway. So the situation is bad in a way. But we have been here before, it's quite a long time since. But the situation was quite similar in 1996, actually, 30 years ago. My first year in the power market. So I remember that situation quite well, actually.
Richard Sverrisson – Editor-in-Chief, Montel NewsSilje, are we at 30 year levels here, or are we, you know, can you describe this how it compares to seasonal norms, the current situation?
Silje Eriksen Holmen – Head of Fundamentals and Hydrology, Volt PowerAs Sigbern says it's at the lowest for this time of year since 1996. It's below both the 2022 energy crisis and also the 2018 drought. So we're currently at a around 48% filling rate in NO2. The rest of Southern Norway is also low, around 56% if we count NO2, NO3, and five altogether.
Richard Sverrisson – Editor-in-Chief, Montel NewsShould we be worried about these very low hydropower levels?
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsDepends on what your concerns are. Are you focusing on sort of energy security or are you worried about the price levels?
Richard Sverrisson – Editor-in-Chief, Montel NewsI think both.
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsYes, I mean the Nordici, it's a surplus area. We have ample surplus of 50 terawatt hours per year. So most likely we can recover over time, energy wise, and the market is responding to the signal. Export is has been reduced, and comparing to 2022, which was where sort of export was more or less regulated, where hydropower producers in the south were obliged to report how much they produced. We see that then the August levels was approximately 1700 gigawatts, and currently they are just below 2500. So I think the market is taking care of this. We see that we have uh reduced the export to the Netherlands and Germany
Is Norway Still Europe’s Battery
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & Forecastsa lot. To UK, still there's something, but I still believe in the market's ability to regulate this. But it means okay, we are having high prices, we will be on par with continental prices for a while, probably until the end of this year, depending a bit on the development.
Richard Sverrisson – Editor-in-Chief, Montel NewsSo no real security supply risk, but prices could spike. Is that your view as well, Sigmund?
Sigbjørn Seland – Chief Analyst, StromGeoYou know, hydropower producers in NO2 they have increased their water values quite substantially, so they are dealing with this situation. So I would say no reason to be worried, but obviously everyone pays attention to the situation. But as Gro says, you know, hydropower production volumes have been reduced. Water values in NO2 as an average is close to 160 euros per megawatt hour, well above German base load price level for the rest of this year, and not so far away from German peak price level for the rest of the year. So obviously, that is yeah, showing that the market is dealing with this situation, and you know that is that is no big surprise. I mentioned that 1996 was my first year in the power market. Obviously, a lot of things have changed since then, but I would say that the hydropower producers in NO2 they behave in exactly the same way as they did then, and the the supply curve in NO2 would have looked the same back in 1996. The market has been here before, and we'll deal with this situation. Obviously, the possible price range for this autumn and winter is big. Probably by the end of the year, we will have hydro reservoir filling in NO2 somewhere between 46 and 67, maybe even 70% hydro reservoir filling. So in the worst case, we will end up end of year around where we were in 1996, or we or we could, in a very wet autumn, end up with no close to normal hydro reservoirs in in NO2s. But bidding strategies have been adjusted to reflect the current weak hydrological situation.
Richard Sverrisson – Editor-in-Chief, Montel NewsYeah, some very interesting points there, and I think obviously everything depends on the weather, on the rainfall, and the weather gods, if you like. But Sigbjørn, you said that a wide price range. Could you go into details there? What kind of price range are we talking about? The highs and the lows.
Sigbjørn Seland – Chief Analyst, StromGeoYeah, you know, that is from average prices, let's say September until end of year, or at least during Q4 of this year, we can have prices in NO2 below 100 as an average, if we have, you know, a wet autumn, like for instance in 2017. Or we could end up above 200 euros per megawatt hour as an average price if we have a dry cold autumn.
Richard Sverrisson – Editor-in-Chief, Montel NewsYeah, and we're talking spot prices here, the system prices, yeah. This is the NO2 price.
Expert Panel On Nordic Hydro Deficit
Richard Sverrisson – Editor-in-Chief, Montel NewsSilje, do you agree with what the sort of forecast or the expectations for the autumn here?
Silje Eriksen Holmen – Head of Fundamentals and Hydrology, Volt PowerYeah, well, it all comes down to the weather, I would say. So we really need very wet autumn to refill reservoirs to normal. So inflow is low at the moment. It's been dry lately. We are dependent on that the weather forecasts look wet to fill reservoirs. We we need a lot of rain. We just we don't need just a normal rainy autumn. At the moment, NO2 has a deficit from normal or close to 10 terawatt hours. So we actually need autumn inflow at about 66% above normal to refill reservoirs by the end of the year, according to our analysis.
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsMay I chime in here?
Richard Sverrisson – Editor-in-Chief, Montel NewsOf course, Gro, yeah, come in.
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsNow we are in the normal, a very dry period. I mean August is normally very dry, and but as we are entering September, this is a month with a lot of variation and also normally a lot of inflow. So following the forecast two weeks ahead and two to six weeks ahead will tell us a lot more. So now we are sort of at the beginning of a very interesting period. I agree with both Sigbjørn on the price level and Silje that okay, we need more than normal to reach normal levels. There's very little chance that we will be above normal. So our prediction is also that particularly southern Norway will end up below the median at the end of the year. But September is key.
Richard Sverrisson – Editor-in-Chief, Montel NewsSo back to you, Silje.
Silje Eriksen Holmen – Head of Fundamentals and Hydrology, Volt PowerI would say that yes, of course, September is variable, and we will know a lot more in the weeks to come. But the weather forecasts and the seasonal forecasts don't look very promising. I have looked at the weather forecast and the seasonal forecast for autumn, and the dominant regime seems to be high pressure of the Nordics, which will probably give drier conditions than normal. And of course it's uncertain, but the odds of a very wet autumn is quite slim. It's difficult to look too far ahead with weather forecast, but at least the next coming months doesn't look very wet. So we analyzed this by replaying every autumn since 1990 from today's level while keeping production normal. And what we found is that we need more inflow than any of the last 36 autumns to make it. So, of course, if producers hold output lower than normal that would help, but it's not likely that we will refill to normal by the end of 2026. Of course, it also depends on the winter, the snowfall, the snowpack melting next season. So I don't think it's a crisis, but I don't think it's likely that we will fill up to normal by this year.
Richard Sverrisson – Editor-in-Chief, Montel NewsBut suddenly NO2 faces very high prices. Sigbjørn, you'd like to come in?
Sigbjørn Seland – Chief Analyst, StromGeoYeah, so definitely it's not to be expected that we will be anywhere close to a normal situation by the end of the year. Probably our forecasted NO2 restful filling by the end of the year is maybe around 55-56%, which is obviously low, but not any dramatic situation. And I think it's always interesting to look into the market and see what is sort of could could be read from the market, and you see that the NO2 price in the market is currently close to 120 euros per megawatt hour, which is quite low, I would say. So either the market has not sort of put too much attention to it, or the market is thinking that this will be no problem. But you know, compared to the current bidding strategies from producers in NO2, where they're priced, they're flexible water, yeah, typically in the range, or very much of it in the range of 150-60 euros per megawatt hour, I would say that the market price of 120 euros per megawatt hour for NO2, Q426 is too low. I would say that it's quite much below where we think the NO2 average price will be.
Richard Sverrisson – Editor-in-Chief, Montel NewsSo listen ers, you've been told, the price will will increase most probably here in Q4. I'm also interested, we're talking about NO2, Gro, and that's obviously the south, southern Norway in particular. What about the rest of Norway and the rest of the Nordics in particular? What's happening there? There's obviously more hydropower in the north of Norway than there is in the south, but what kind of how does that play onto prices as well?
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsThe hydrological situation, I mean NO2 is the most severe, but also NO5 is having a large deficit.
Richard Sverrisson – Editor-in-Chief, Montel NewsNO5 being, which is the
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsWest Coast. Famous for its notorious rain. And I've heard it been a rainy summer, but still, I mean the hydrological balance is below normal. Also in NO3, the middle part of Norway where I'm sitting and where it's been raining the whole summer, is in deficit. So the north is still approximately three terbat hours in surplus. They've had excess inflow and also sort of challenging with exporting the surplus. Sweden is overall more balanced, a little bit deficit in the north, SO1, which from our is reflecting a kind of a changing pattern after that. We got the Auroraline last year, open November. So sort of export capacities from SE1 has so it's mainly a problem in southern Norway, I see, and also the middle part of Norway represented by NO3 is latching on with the increased capacity southwater after the Elanson Valkabel opening October last year. So we're seeing the impact of that. Of course, this the grid capacity put limits to the price shock. So
How Much Rain Stops A Price Spike
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & Forecastsso NO2 will be sort of latching on to German prices, and gradually this wears off as we have bottlenecks, the grid going further and further north. But also the the other areas can expect high prices in the coming autumn. But not in the same level as we're seeing in in southern Norway, then Yeah, it gets the most direct hit because of the cables to Netherlands, Germany, and the UK, yes.
Richard Sverrisson – Editor-in-Chief, Montel NewsI like to stick with the the the cable issue here at Sigbjørn. I mean interconnectors and cables are often heavily criticized in some areas in in Norway for increasing prices rather than keeping prices low, and it's often been political hot potato. What's your view here? Can the interconnectors come to the aid of Norway in terms of both security of supply and keeping prices a bit lower? Or was the opposite true?
Sigbjørn Seland – Chief Analyst, StromGeoYeah, definitely. If we have a dry autumn with low inflows to NO2, obviously the system will import more and more, and the cable C cables will contribute to keeping prices relatively low. They will not be low, but relatively low C cables, definitely. And now maybe a bit more important now than before due to this price. It's a fixed price for all households in Norway that that choose to go for that. It's very cheap, it's around 40 euros per megawatt hour. So that has removed the electricity consumption elasticity from households in southern Norway. Last time we were in this bad situation back in 1996, we saw eventually that households and industries cut back on consumption quite a bit, and that element is not that evident this year due to this fixed price for for households. And that leaves more of the job to the interconnectors, but the interconnector the import capacity is plentiful. Energy will be have a high high price potentially, but there will not be an energy crisis due to the very huge import capacity on the sea cables.
Richard Sverrisson – Editor-in-Chief, Montel NewsYeah, maybe that point needs to be made more in the public sphere, maybe it's a given but and I'm also thinking, you know, with the Strait of Hormuz remaining closed, Norway will also be affected by potential upswings in the gas price, right? And in Germany, if Germany doesn't fill its gas storage facilities, prices could rise quite substantially there, which would impact certainly prices in southern Norway, again, probably on the upside, right?
Sigbjørn Seland – Chief Analyst, StromGeoDefinitely prices or the offer prices from hydropower in NO2 is very closely linked to the price of natural gas or the marginal cost for for the combined cycle gas turbines, which reflects into German futures, baseload futures price. So that link is very obvious. The price in NO2 is very exposed to the development in the Middle East, that's for sure.
Richard Sverrisson – Editor-in-Chief, Montel NewsBefore I turn to you, Silje, would you like to come in there Gro, about the sort of the link with the gas situation in continental Europe?
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsIf you look at the exchange with Germany now, we see that basically we utilize the capacity in both directions several times a day. So we are already importing a lot of cheap surplus power in the middle of the day and then exporting in the peaks. And then it's sort of debattless what happens during the sort of more medium priced night prices. So will we sort of baseload night prices or not? I think uh looking at the export to Germany, it's been we have uh for the past month we have a slight surplus, but it's much lower than it used to be due to this heavy
Interconnectors, Gas Prices, Import Relief
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & Forecastsdaytime. So we are actually absorbing cheap power, but because of the hydrological situation, the water values is so high. So the capacity is large enough in this deficit that we get this very high price contamination. And of course that's exacerbated by the situation with low river levels in Europe, high peaks from cooling demand in the evening. We see the growth in in heat pumps that also have a sort of second-ass cooling devices in the evening. That electrification it's taking toll in Europe and we see it in the peak pricing. So we are affected by this, yes.
Richard Sverrisson – Editor-in-Chief, Montel NewsVery high demand and very volatile as well in terms of the daily price curve. Absolutely, in continental Europe that is. Silje, going into the winter, what are the biggest uncertainties that we face here in Nordics.
Silje Eriksen Holmen – Head of Fundamentals and Hydrology, Volt PowerOf course the weather. So we are dependent on wet weather forecasts. You know the political situation, Hormuz strait. But this is also something that will impact the winter prices that we need to follow. We don't know yet how the winter will be, if it will be a cold winter or a warm winter. So demand is very relevant.
Richard Sverrisson – Editor-in-Chief, Montel NewsI think that links also to Sigbjørn's point about the Norges price and the retail pride and the incentive to cut back on consumption is maybe not there or not gonna be so clear in the winter months. Absolutely grow. I just I'd like to round off with a a final question for all three
Climate Change And The New Volatility
Richard Sverrisson – Editor-in-Chief, Montel Newsof you. Now we're seeing drought, dry weather, low hydropower, run of river, reservoirs, all very low levels in in certain parts of Europe. Are dry periods becoming a more significant market risk Gro?
Gro Klæboe – Product Manager, Mid- and Long-term Modelling, Volue Data & ForecastsYes, and I think Silje could answer this better, but the climate is changing and what's happening? We get more extreme weather, we get more drought, especially the south is more perceptible to drought. But also on the other end, we get more extreme precipitation, so concentration of precipitation. Maybe not so heavily in the south, maybe more on the western north coast. So the weather is getting more extreme. Yeah, it's a peak in the future where it will be more volatile.
Richard Sverrisson – Editor-in-Chief, Montel NewsI'd like to round off with you, Silje, but first to Sigbjørn.
Sigbjørn Seland – Chief Analyst, StromGeoClimate change impacts, precipitation, inflows, seasonality. But from a market perspective, I don't see that climate risk has fundamentally changed the way hydropower producers manage their reservoirs. Obviously, they need to plan for more volatility, but basically they do their optimization business as always, I would say.
Richard Sverrisson – Editor-in-Chief, Montel NewsAs they did in 1996 when you started Sigbjørn.
Sigbjørn Seland – Chief Analyst, StromGeoExactly, exactly. I think that's an interesting point, actually. That basically, with all the changes, yeah, more interconnectors, more wind and solar, but you know, the optimization problem for for hydropower users is the same and they behave basically in the same way.
Richard Sverrisson – Editor-in-Chief, Montel NewsThank you very much, Sigbjørn . And finally to you, Silje. So dry periods, drought, is this the new normal?
Silje Eriksen Holmen – Head of Fundamentals and Hydrology, Volt PowerYes, it is, I would say. So we have been seeing more and more droughts the last years. And it's of course we can't really prove a trend from a handful of years. It's still quite early, but what the climate signal points to is a widening of the range. So we get more heavy rain and flooding, and also more drought, more drier years. So this is quite evident. And most projections point to the Nordics getting somewhat wetter on average in the future. So the raw resource may even grow. But the change is in timing and variability. So today, a huge share of our inflow is stored as snow through winter, and it's released in the spring and early summer melt. So Norwegian snowpack is a giant natural reservoir. And as it warms, then more winter precipitation will fall as rain instead of snow. And the snow that does fall will melt earlier. So inflow shifts earlier in the year, and more of it arrives in autumn and winter when it used to be locked up.
Richard Sverrisson – Editor-in-Chief, Montel NewsThese are very significant seasonal changes, potentially, aren't they, Silje? But a very, very interesting point, and I think that's a little bit of a warning sign for the listeners and viewers out there. But Gro, Silje and Sigbjørn, thank you very much for being guests on the Plugged In Podcast this week.
Key Takeaways And How To Support
Richard Sverrisson – Editor-in-Chief, Montel NewsAnd to you listeners, thanks for listening to this episode of Plugged In. If you enjoyed this discussion, please like, rate, and follow to make sure you get the latest podcast episodes as soon as we release them every Thursday. You can head to montelnewscom for more news and analysis from our team of journalists across Europe and beyond. See you next time.
